AGENDA – FINANCE AND RISK MANAGEMENT COMMITTEE – SAN DIEGO COMMUNITY POWER 1 Appro
AGENDA
Meeting of the Finance and Risk Management Committee
San Diego Community Power (SDCP)
November 9, 2023
3:00 p.m.
City of San Diego Metropolitan Operations Complex (MOC II) Auditorium 9192 Topaz Way, San Diego, CA 92123
The meeting will be held in person at the above date, time and location. Finance and Risk Management Committee (FRMC) Members and members of the public may attend in person. Under certain circumstances, FRMC Members may also attend and participate in the meeting virtually pursuant to the Brown Act (Gov. Code § 54953). As a convenience to the public, SDCP provides a call-in option and internet-based option for members of the public to virtually observe and provide public comments at its meetings. Additional details on in-person and virtual public participation are below. Please note that, in the event of a technical issue causing a disruption in the call-in option or internet-based option, the meeting will continue unless otherwise required by law, such as when an FRMC Member is attending the meeting virtually pursuant to certain provisions of the Brown Act.
Note: Any member of the public may provide comments to the Finance and Risk Management Committee on any agenda item. When providing comments to the FRMC, it is requested that you provide your name and city of residence for the record. Commenters are requested to address their comments to the FRMC as a whole through the Chair. Comments may be provided in one of the following manners:
1. Providing Oral Comments During Meeting. Anyone attending in person desiring to address the FRMC is asked to fill out a speaker’s slip and present it to the Clerk of the Board or the Secretary. To provide remote comments during the meeting, join the Zoom meeting by computer, mobile phone, or dial-in number. On Zoom video conference by computer or mobile phone, use the “Raise Hand” feature.
This will notify the moderator that you wish to speak during a specific item on the agenda or during non-agenda Public Comment. Members of the public will not be shown on video but will be able to speak when called upon. If joining the meeting using the Zoom dial-in number, you can raise your hand by pressing *9. Comments will be limited to three (3) minutes.
2. Written Comments. Written public comments must be submitted prior to the start of the meeting by using this (Web Comment Form). Please indicate a specific agenda item when submitting your comment. All written comments received prior to the meeting will be provided to the FRMC members in writing. In the discretion of the Chair, the first ten (10) submitted comments shall be stated into the record of the meeting. Comments read at the meeting will be limited to the first 400 words. Comments received after the start of the meeting will be collected, sent to the FRMC members in writing, and be part of the public record.
If you have anything that you wish to be distributed to the FRMC, please provide it via [email protected], who will distribute the information to the Members.
AGENDA – FINANCE AND RISK MANAGEMENT COMMITTEE – SAN DIEGO COMMUNITY POWER 2 The public may participate using the following remote options:
Teleconference Meeting Webinar https://zoom.us/j/93476863568 Telephone (Audio Only) (669) 900-6833 or (253) 215-8782 | Webinar ID: 934 7686 3568 Welcome
Call to Order
Roll Call
Pledge of Allegiance
Items to be Added, Withdrawn, or Reordered on the Agenda Public Comments for Items Not on the Agenda
Opportunity for members of the public to address the Board on any items not on the agenda but within the jurisdiction of the Board. Members of the public may provide a comment in either manner described above.
MEETING AGENDA
1. Approval of October 19, 2023 Meeting Minutes
Recommendation: Approve the October 19, 2023 Meeting Minutes
2. Review of Treasurer’s Report for Period Ending 9/30/23 Recommendation: Receive and File Treasurer’s Report for Period Ending 9/30/23
3. Recommend Board Approval of Fiscal Year End 2022-23 Financial Audit Recommendation: Recommend to the Board of Directors Approval of the Fiscal Year End 2022-23 Financial Audit
Committee Member Announcements
Committee Members may briefly provide information to other members and the public. There is to be no discussion or action taken on comments made by Directors unless authorized by law.
Adjournment
Copies of the agenda and agenda packet are available at https://sdcommunitypower.org/resources/meeting-notes/. Late-arriving documents related to a Board meeting item which are distributed to a majority of the Members prior to or during the Board meeting are available for public review as required by law. Public records, including agenda-related documents, can be requested electronically at [email protected] or by mail to SDCP, PO BOX 12716, San Diego, CA 92112. The documents may also be posted at the above website.
Such public records are also available for inspection, by appointment, at San Diego Community Power, 2305 Historic Decatur Road, Suite 200, San Diego, CA 92106. Please contact [email protected] to arrange an appointment.
MINUTES – FINANCE AND RISK MANAGEMENT COMMITTEE – SAN DIEGO COMMUNITY POWER 1 FINANCE AND RISK MANAGEMENT COMMITTEE
SAN DIEGO COMMUNITY POWER (SDCP)
City of San Diego Metropolitan Operations Complex (MOC II) Auditorium 9192 Topaz Way
San Diego, CA 92123
MINUTES
October 19, 2023
The Committee minutes are prepared and ordered to correspond to the Committee Agenda.
Agenda Items can be taken out of order during the meeting.
The Agenda Items were considered in the order presented.
WELCOME
CALL TO ORDER
Chair McCann (Chula Vista) called the Finance and Risk Management Committee meeting to order at 3:04 p.m.
ROLL CALL
PRESENT: Chair McCann (Chula Vista), Director Aguirre (Imperial Beach), Director Parent (La Mesa)
ABSENT: None
Also Present: Chief Financial Officer (“CFO”)/Treasurer Washington, Assistant General Counsel Novell, City Clerk Wiegelman
PLEDGE OF ALLEGIANCE
Chair McCann (Chula Vista) led the Pledge of Allegiance.
ITEMS TO BE ADDED, WITHDRAWN, OR REORDERED ON THE AGENDA There were no items to be added, withdrawn, or reordered.
MINUTES – FINANCE AND RISK MANAGEMENT COMMITTEE – SAN DIEGO COMMUNITY POWER 2 PUBLIC COMMENTS FOR ITEMS NOT ON THE AGENDA
There were no public comments.
REGULAR MEETING AGENDA
1. Approval of September 14, 2023 Meeting Minutes
ACTION: Motioned by Director Aguirre (Imperial Beach) and seconded by Director Parent (La Mesa) to approve the minutes of the Finance and Risk Management Committee meeting held Thursday, September 14, 2023. The motion carried by the following vote:
Vote: 3-0
Yes: Chair McCann (Chula Vista), Director Aguirre (Imperial Beach), Director Parent (La Mesa)
No: None
Abstained: None
Absent: None
2. Review of Treasurer’s Report for Period Ending 8/31/23 CFO/Treasurer Washington presented the Treasurer’s Report for period ending August 31, 2023.
Following Committee questions and comments, no action was taken.
3. Fiscal Year End 2023 Financial Audit Progress Report Presentation CFO/Treasurer Washington provided a PowerPoint presentation on the June 30, 2023 Fiscal Year-end Auditor’s Report, highlighting the timeline, the significant areas of focus, and current findings.
Following Committee questions and comments, no action was taken.
4. Recommend Board Approval of the Net Billing Tariff
Program Manager Lomeli provided a PowerPoint presentation on the Net Billing Tariff (NBT), highlighting the purpose, advantages, and analysis of NBT, analysis of avoided cost calculator rates, generation adders, stakeholder engagement, net surplus compensation, and battery storage pilot program.
ACTION: Motioned by Director Parent (La Mesa) and seconded by Director Aguirre (Imperial Beach) to recommend to the Board of Directors approval of the Net Billing Tariff. The motion carried by the following vote:
Vote: 3-0
Yes: Chair McCann (Chula Vista), Director Aguirre (Imperial Beach), Director Parent (La Mesa)
No: None
Abstained: None
Absent: None
MINUTES – FINANCE AND RISK MANAGEMENT COMMITTEE – SAN DIEGO COMMUNITY POWER 3 5. Update on Existing Net Energy Metering Policy
Director of Data Analytics and Account Services Utouh provided a PowerPoint presentation on the existing Net Energy Metering (NEM) policy, highlighting the proposed updates to the NEM policy.
Following Committee questions and comments, no action was taken.
COMMITTEE MEMBER ANNOUNCEMENTS
There were no announcements.
ADJOURNMENT
Chair McCann (Chula Vista) adjourned the meeting at 3:43 p.m.
SAN DIEGO COMMUNITY POWER
Staff Report – Item 2
-------------------------------------------------------------------------------------------------------------------- To: San Diego Community Power Financial and Risk Management Committee From: Eric W. Washington, Chief Financial Officer
Via: Karin Burns, Chief Executive Officer
Subject: Review of Treasurer’s Report for Period Ending 9/30/23 Date: November 9, 2023
--------------------------------------------------------------------------------------------------------------------
RECOMMENDATION
Receive and File Treasurer’s Report for Period Ending 9/30/23.
BACKGROUND
San Diego Community Power (SDCP) maintains its accounting records on a full accrual basis in accordance with Generally Accepted Accounting Principles (GAAP) as applicable to governmental enterprise funds.
SDCP has prepared its year-to-date financial statements for the three-month period ended 9/30/23, along with budgetary comparisons.
SDCP additionally reports monthly metrics during its Board meetings as part of its Update on Back-Office Operations. As part of the Treasurer’s Report, certain key metrics related to risk are to be presented during Financial and Risk Management Committee (FRMC) meetings.
ANALYSIS AND DISCUSSION
Actual financial results for the three-month period ended 09/30/23: $517.19 million in net operating revenues were reported compared to $524.99 million budgeted for the period. $313.94 million in total expenses were reported (including $305.36 million in energy costs) compared to $311.49 million budgeted for the period (including $296.51 million budgeted for energy costs). After expenses, SDCP’s change in net position of $203.25 million was reported year-to-date through 9/30/23 of Fiscal Year 2023-24. The following is a summary of the actual the 1st quarter results compared to the Fiscal Year 2023-24 Budget.
Table 1: Budget Comparison Versus Actual Results
• Net operating revenues finished $7.79 million (or 1.0 percentage points) under the budget and were largely driven by lower-than-expected demand due to milder summer temperatures.
• Operating expenses finished $2.45 million (or 1.0 percentage points) over the budget and was reflective of rising energy costs directly related to resource adequacy and renewables.
Financial results for the period underperformed the projections presented in the year-to-date proforma. SDCP’s change in net position was 12 percentage points under the projections. Rising energy costs and lower than expected customer demand were the contributing factors.
The following is a summary to actual results compared to the fiscal year-to-date proforma.
Table 2: Proforma Comparison Versus Actual Results
Budget Comparison
YTD FY24 as of
09/30/23 (3 mos) FY24 YTD Budget Budget
Variance ($) Budget (%)
Net Operating Revenues $ 517,196,173 $ 524,986,488 $ (7,790,315) 99% Total Expenses $ 313,942,477 $ 311,491,513 $ 2,450,964 101% Change in Net Position $ 203,253,696 $ 213,494,975 $ (10,241,279) -5% Proforma Comparison
YTD FY24 as of
09/30/23 (3 mos)
FY24 YTD
ProForma
ProForma
Variance ($)
Proforma
(%)
Net Operating Revenues $ 517,196,173 $ 524,986,488 $ (7,790,315) -1% Total Expenses $ 313,942,477 $ 311,661,197 $ 2,281,280 1% Change in Net Position $ 203,253,696 $ 213,325,291 $ (10,071,595) -5% Figure 1: Proforma versus Actual Results
For the three-month period ending 09/30/23, SDCP contributed $203,253,975 to its reserves. Total SDCP reserves at the end of the period were $376,732,632 achieving 77% of its 180 days cash on hand reserve target of $491,079,452 as set by SDCP’s Reserve Policy and Strategic Goals. As of 9/30/23, SDCP had access to $506,002,632 when including availability on its the line of credit.
Figure 2: Participation Rates
Phase 4 mass enrollment process in National City and Unincorporated County of San Diego for Non-Net Energy Metering (NEM) customers is officially completed as of May, 2023. The participation rate for this new phase is fluid and will change as we continue with our enrollment of Net Energy Metering (NEM) customers from April 2023 through March 2024. In the interim, we are reporting on the opt outs and eligible accounts associated with the phase based on those accounts that we have noticed for enrollment on a rolling basis as of the reporting month.
Staff are also presenting State of SDCP Arrearages directly related to financial risk for FRMC consideration and for regular review. Additional metrics can be added by request.
The below arrearage data includes SDCP’s Receivables aged 120+ Days as of 11/02/2023.
Figure 3: State of SDCP Arrearages Across All Customer Types Figure 4: A Breakdown of the State of SDCP Arrearages Between Residential and Commercial
FISCAL IMPACT
N/A
ATTACHMENTS
Attachment A: 2023 Year-to-Date Period Ended 09/30/23 Financial Statements 1 ACCOUNTANTS’ COMPILATION REPORT
Management
San Diego Community Power
Management is responsible for the accompanying financial statements of San Diego Community Power (a California Joint Powers Authority) which comprise the statement of net position as of September 30, 2023, and the related statement of revenues, expenses, and changes in net position, and the statement of cash flows for the period then ended in accordance with accounting principles generally accepted in the United States of America. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the accompanying statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, conclusion, nor provide any assurance on these financial statements.
Management has elected to omit substantially all of the note disclosures required by accounting principles generally accepted in the United States of America in these interim financial statements. San Diego Community Power’s annual audited financial statements include the note disclosures omitted from these interim statements. If the omitted disclosures were included in these financial statements, they might influence the user’s conclusions about the Authority’s financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters.
We are not independent with respect to the Authority because we performed certain accounting services that impaired our independence.
Maher Accountancy
San Rafael, CA
October 30, 2023
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com Current assets
Cash and cash equivalents - unrestricted 253,399,828 $
Cash and cash equivalents - restricted 500,000
Accounts receivable, net of allowance 171,781,140
Accrued revenue 109,531,288
Prepaid expenses 4,993,731
Other receivables 40,446
Deposits 26,033,094
Total current assets 566,279,527
Noncurrent assets
Lease asset, net of amortization 779,690
Capital assets, net of depreciation 150,258
Cash and cash equivalents - restricted 11,897,402
Deposits 2,330,000
Total noncurrent assets 15,157,350
Total assets 581,436,877
Current liabilities
Accrued cost of electricity 162,422,097
Accounts payable 874,543
Other accrued liabilities 4,425,165
State surcharges payable 657,056
Deposits - energy suppliers 1,185,000
Interest payable 459,034
Lease liability 370,460
Total current liabilities 170,393,355
Noncurrent liabilities
Bank note payable 20,730,000
Supplier security deposits 624,000
Lease liability 427,012
Total noncurrent liabilities 21,781,012
Total liabilities 192,174,367
Net investment in capital assets 132,476
Restricted for collateral 12,397,402
Unrestricted 376,732,632
Total net position 389,262,510 $
NET POSITION
SAN DIEGO COMMUNITY POWER
STATEMENT OF NET POSITION
As of September 30, 2023
ASSETS
LIABILITIES
See accountants' compilation report. 2
OPERATING REVENUES
Electricity sales, net 515,843,773 $
Grant revenue 631,000
Total operating revenues 516,474,773
OPERATING EXPENSES
Cost of electricity 305,358,986
Contract services 4,652,735
Staff compensation 2,245,034
Other operating expenses 867,082
Depreciation and amortization 102,386
Total operating expenses 313,226,223
Operating income 203,248,550
NON-OPERATING REVENUES (EXPENSES)
Investment income 721,400
Interest and financing expense (719,771)
Nonoperating revenues (expenses), net 1,629
CHANGE IN NET POSITION 203,250,179
Net position at beginning of year 186,012,331
Net position at end of year $ 389,262,510
SAN DIEGO COMMUNITY POWER
STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN NET POSITION
Three Months Ended September 30, 2023
See accountants' compilation report. 3
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 424,494,916 $
Receipts of supplier security deposits 14,472,875
Other operating receipts 3,227,290
Payments to suppliers for electricity (219,148,264)
Payments for goods and services (4,481,585)
Payments of staff compensation and benefits (2,240,308) Payments for deposits and collateral (2,605,000)
Payments of state surcharges (500,589)
Net cash provided by operating activities 213,219,335
CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES
Principal payments - bank note (15,000,000)
Interest and related expense payments (803,143)
Net cash provided (used) by non-capital
financing activities (15,803,143)
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments of lease liability (99,692)
Payments to acquire capital assets (71,550)
Net cash (used) by capital and related financing activities (171,242)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest income received 721,400
Net change in cash and cash equivalents 197,966,350
Cash and cash equivalents at beginning of year 67,830,880 Cash and cash equivalents at end of year 265,797,230 $
Reconciliation to the Statement of Net Position
Cash and cash equivalents (unrestricted) 253,399,828 $
Restricted cash - current 500,000
Restricted cash - noncurrent 11,897,402
Cash and cash equivalents 265,797,230 $
SAN DIEGO COMMUNITY POWER
STATEMENT OF CASH FLOWS
Three Months Ended September 30, 2023
See accountants' compilation report. 4
Operating income 203,248,550 $
Adjustments to reconcile operating income to net
cash provided by operating activities
Depreciation and amortization expense 102,386
(Increase) decrease in:
Accounts receivable, net (61,267,409)
Accrued revenue (30,738,504)
Prepaid expenses 25,533,767
Other receivables 193,269
Deposits (10,706,744)
Increase (decrease) in:
Accrued cost of electricity 85,076,754
Accounts payable 435,280
Other accrued liabilities 630,518
State surcharges payable 156,467
Supplier security deposits 555,000
Net cash provided by operating activities 213,219,335 $
SAN DIEGO COMMUNITY POWER
STATEMENT OF CASH FLOWS (continued)
Three Months Ended September 30, 2023
RECONCILIATION OF OPERATING INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
See accountants' compilation report. 5
1 ACCOUNTANTS’ COMPILATION REPORT
Board of Directors
San Diego Community Power
Management is responsible for the accompanying special purpose operating fund budgetary comparison schedule of San Diego Community Power (SDCP), a California Joint Powers Authority, for the period ended September 30, 2023, and for determining that the budgetary basis of accounting is an acceptable financial reporting framework. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the accompanying statement nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, a conclusion, nor provide any assurance on this special purpose budgetary comparison statement.
The special purpose statement is prepared in accordance with the budgetary basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. This report is intended for the information of the Board of Directors of SDCP.
Management has elected to omit substantially all of the note disclosures required by accounting principles generally accepted in the United States of America in these interim financial statements.
SDCP’s annual audited financial statements will include the note disclosures omitted from these interim statements. If the omitted disclosures were included in these financial statements, they might influence the user’s conclusions about the Authority’s financial position, results of operations, and cash flows.
Accordingly, these financial statements are not designed for those who are not informed about such matters.
We are not independent with respect to SDCP because we performed certain accounting services that impaired our independence.
Maher Accountancy
San Rafael, CA
October 30, 2023
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com 2023/24 YTD
Budget
2023/24 YTD
Actual
2023/24 YTD
Budget
Variance
(Under) Over
2023/24
YTD
Actual/
Budget %
2023/24 Annual
Budget
2023/24 Budget
Remaining
REVENUES AND OTHER SOURCES Gross Ratepayer Revenues 546,860,925 537,337,264 $ (9,523,661) 98% 1,346,325,552 $ 808,988,288 $ Less Uncollectible Customer Accounts (21,874,437) (21,493,491) 380,946 98% (53,853,022) (32,359,531) Grant revenue - 631,000 631,000 - (631,000) Total Revenues and Other Sources 524,986,488 516,474,773 (8,511,715) 1,292,472,530 775,997,757OPERATING EXPENSES Cost of Energy 296,513,849 305,358,986 8,845,137 103% 948,529,425 643,170,439 Professional Services and Consultants 6,546,847 4,444,570 (2,102,277) 68% 22,939,626 18,495,056 Personnel Costs 3,453,837 2,245,034 (1,208,803) 65% 13,178,031 10,932,997 Marketing and Outreach 849,665 580,855 (268,810) 68% 2,973,829 2,392,974 General and Administration 2,478,421 527,910 (1,950,511) 21% 7,861,973 7,334,063 Programs 79,500 75,000 (4,500) 94% 278,250 203,250 Total Operating Expenses 309,922,119 313,232,355 3,310,236 995,761,134 682,528,779 Operating Income (Loss) 215,064,369 203,242,418 (11,821,951) 296,711,396 93,468,978NON-OPERATING REVENUES (EXPENSES) Investment income - 721,400 721,400 - (721,400) Interest and related expenses (609,394) (710,122) (100,728) 117% (2,437,574) (1,727,452) Transfer to Capital Investment Program (960,000) - 960,000 0% (3,840,002) (3,840,002) Total Non-Operating Revenues (Expenses) (1,569,394) 11,278 1,580,672 (6,277,576) (6,288,854)NET INCREASE (DECREASE) $ 203,253,696 213,494,975 $ (10,241,279) $ 290,433,820 $ 87,180,124 $
SAN DIEGO COMMUNITY POWER
BUDGETARY COMPARISON SCHEDULE
Three Months Ended September 30, 2023
OPERATING FUND
See accountants' compilation report.
SAN DIEGO COMMUNITY POWER
Staff Report – Item 3
--------------------------------------------------------------------------------------------------------------------- To: San Diego Community Power Finance and Risk Management Committee From: Eric W. Washington, Chief Financial Officer
Via: Karin Burns, Chief Executive Officer
Subject: Fiscal Year End 2023 Financial Audit Report Presentation Date: November 9, 2023
---------------------------------------------------------------------------------------------------------------------
RECOMMENDATION
Receive and File Fiscal Year End 2023 Financial Audit Progress Report Presentation.
BACKGROUND
On October 1, 2019, the Founding Members of San Diego Community Power (SDCP) adopted the Joint Powers Agreement (JPA) which was amended and restated on December 16, 2021.
Section 4.6.14 of the JPA specifies the Board of Directors (Board) shall arrange for an annual independent fiscal audit.
Section 5.4 of the JPA specifies the Board shall appoint a Treasurer who shall function as the combined offices of Treasurer and Auditor and shall strictly comply with the statutes related to the duties and responsibilities specified in Section 6505.5 of the Act. The section further specifies that the Treasurer shall cause an independent audit(s) of the finances of SDCP to be made by a certified public accountant, or public accountant, in compliance with Section 6505 of the Act.
Section 7.2.2 of the JPA additionally specifies that the SDCP Board shall contract with a certified public accountant to make an annual audit of the financial statements of SDCP, which shall be conducted in accordance with the requirements of Section 6505 of the Act.
On July 1, 2021, SDCP entered into a professional services agreement with Pisenti & Brinker to perform its annual audit for FY 2020-21. On July 1, 2022, SDCP exercised an option in the professional services agreement to extend the term from June 30, 2022, to June 30, 2023. Subsequently, on July 27, 2023, SDCP exercised the last option in the professional services agreement to extend the term from June 30, 2023 to June 30, 2024, to conduct its annual audit for FY 2022-23. Pisenti & Brinker is a firm with extensive experience auditing CCA’s throughout California, as well as other local government entities.
On October 19, 2023, Staff presented on the audit process and the preliminary results to the SDCP Financial Risk Management Committee.
On October 26, the auditor presented on the audit process and the preliminary results to the SDCP Board of Direct.
ANALYSIS AND DISCUSSION
Pisenti & Brinker audit results will be presented to FRMC on November 9, 2023, and presented to the Board on November 16, 2023 to receive and file the final the 6/30/23 Fiscal Year End Audited Financial Statements.
FISCAL IMPACT
Not applicable
ATTACHMENTS
Attachment A: Audited Financial Statements for Fiscal Year Ended June 30, 2023
SAN DIEGO COMMUNITY POWER
FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 & 2022
WITH REPORT OF
INDEPENDENT AUDITORS
TABLE OF CONTENTS
Independent Auditor’s Report ………………………………………………….......... 1 Management’s Discussion and Analysis ……………………………………………... 4 Basic Financial Statements:
Statements of Net Position …………………………………………………… 10
Statements of Revenues, Expenses and Changes in Net Position …................ 11 Statements of Cash Flows ……………………………………………………. 12
Notes to the Basic Financial Statements ……………………………………… 14 A.
SANTA ROSA PETALUMA
RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. 3562 Round Barn Circle, Suite 200
Santa Rosa, CA 95403
(707) 542-3343 Office
(707) 527-5608 Fax
pbllp.com
Independent Auditor’s Report
To the Board of Directors
San Diego Community Power
San Diego, California
Opinion
We have audited the financial statements of San Diego Community Power (SDCP), which comprise the statements of net position as of June 30, 2023 and 2022, the related statements of revenue, expenses and changes in net position, and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of SDCP as of June 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of SDCP and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about SDCP’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued.
Independent Auditor’s Report (continued)
Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of SDCP’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about SDCP’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Santa Rosa, California
November 3, 2023
SAN DIEGO COMMUNITY POWER
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEARS ENDED JUNE 30, 2023 AND 2022
4 The Management’s Discussion and Analysis provides an overview of San Diego Community Power’s (SDCP) financial activities as of and for the years ended June 30, 2023 and 2022. The information presented here should be considered in conjunction with the audited financial statements.
BACKGROUND
The formation of SDCP was made possible in 2002 by the passage of California Assembly Bill 117, enabling communities to purchase power on behalf of their residents and businesses and creating competition in power generation.
SDCP was created as a California Joint Powers Authority (JPA) effective October 1, 2019, and was established to provide electric power at competitive costs as well as to provide other benefits to its members (Unincorporated County of San Diego and the cities of Chula Vista, Encinitas, Imperial Beach, La Mesa, National City, and San Diego), including reducing greenhouse gas emissions related to the use of power, procuring energy with a priority on the use and development of local renewable resources, stimulating local job creation through various programs and development, promote personal and community ownership of renewable resources, as well as promoting long-term electric rate stability and energy reliability for residents and businesses.
Governed by a board of directors (Board) consisting of elected representatives from each jurisdiction, SDCP has the rights and powers to set rates for the services it furnishes, incur indebtedness, and issue bonds or other obligations. SDCP is responsible for the acquisition of electric power for its service area.
SDCP began providing electricity to municipal customers in March 2021, with commercial customers starting June 2021 and with residential customers in Imperial Beach starting in February 2022, in La Mesa starting in March 2022, in Encinitas starting in April 2022, in San Diego and Chula Vista starting in May 2022, and in National City and the Unincorporated County of San Diego starting in April 2023.
SAN DIEGO COMMUNITY POWER
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEARS ENDED JUNE 30, 2023 AND 2022
5 Financial Reporting
SDCP presents its financial statements as an enterprise fund under the economic resources measurement focus and accrual basis of accounting, in accordance with Generally Accepted Accounting Principles (GAAP) for proprietary funds, as prescribed by the Governmental Accounting Standards Board (GASB).
Contents of this report
This report is divided into the following sections:
Management discussion and analysis, which provides an overview of the financial operations.
The basic financial statements:
o The Statements of Net Position include all of SDCP’s assets, liabilities, and net position and provide information about the nature and amount of resources and obligations at a specific point in time.
o The Statements of Revenues, Expenses, and Changes in Net Position report all of SDCP’s revenue and expenses for the years shown.
o The Statements of Cash Flows report the cash provided and used by operating activities, as well as other sources and uses, such as debt financing. o Notes to the Basic Financial Statements provide additional details and information related to the basic financial statements.
SAN DIEGO COMMUNITY POWER
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEARS ENDED JUNE 30, 2023 AND 2022
6 FINANCIAL HIGHLIGHTS
The following is a summary of SDCP’s assets, liabilities, and net position and a discussion of significant changes during the years ending June 30:
2023 2022 2021
Current assets 300,522,958 $ 165,105,688 $ 20,750,268 $ Noncurrent assets 6,064,334 15,950,000 11,250,000
Total assets 306,587,292 181,055,688 32,000,268
Current liabilities 83,699,768 106,666,913 40,531,164
Noncurrent liabilities 36,875,193 31,857,823 5,517,741
Total liabilities 120,574,961 138,524,736 46,048,905
Net position
Investment in capital assets 73,268 - -
Restricted 2,147,000 2,500,000 -
Unrestricted (deficit) 183,792,063 40,030,952 (14,048,637) Total net position 186,012,331 $ 42,530,952 $ (14,048,637) $ Current assets
Current assets were approximately $300,523,000 at the end of 2023 and were comprised of the following major categories: cash of $65,684,000, accounts receivable from customers of $110,514,000, accrued revenue of $78,793,000, and prepaid expenses and deposits of $45,299,000, each of which mark an increase from 2022. Much of the increase in current assets was driven by large enrollments of commercial and residential customers throughout 2022 that were in effect for the entirety of 2023, as well as the enrollment of National City and the unincorporated County of San Diego in April 2023. In addition to these enrollments, SDCP increased customer rates during 2023 which had the result of increasing the net position for the year. Accrued revenue differs from accounts receivable in that it represents electricity provided to SDCP customers that had not been invoiced as of the statement of net position date. Prepaid expenses and deposits saw large increases in 2023 as many of SDCP’s energy suppliers required advance payments and collateral prior to delivery.
Noncurrent assets
Noncurrent assets are comprised of restricted cash and deposits in SDCP’s name held by other parties, and capital and lease assets. Noncurrent assets decreased in 2023 as approximately $10,000,000 of restricted cash related to a loan was released when the loan was paid off.
SAN DIEGO COMMUNITY POWER
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEARS ENDED JUNE 30, 2023 AND 2022
7 Current liabilities
The largest component of current liabilities is the cost of electricity delivered to customers that is not yet due to paid by SDCP until after year end. Another significant component of current liabilities is security deposits held by SDCP from energy suppliers. Various contracts entered into by SDCP require the supplier to provide SDCP with a security deposit. These deposits are returned by SDCP at the completion of the related contract or as other milestones are met.
Accrued cost of electricity increased year-over-year due to operating activities associated with a major enrollment of residential customers starting in May 2022. Security deposit liabilities decreased from $42,624,000 in 2022 to $630,000 in 2023. This change was caused by return of collateral to various energy suppliers after either certain contract milestones were met, or the relevant market exposure declined.
During 2023, private debt of $5,000,000 became due and was paid off by SDCP.
Noncurrent liabilities
During 2023, SDCP entered into a revolving credit agreement with a new bank. As part of this process, SDCP terminated and paid off the balance of its existing revolving letter of credit. The maturity date on the new agreement falls in 2028 and the entire note payable as of June 30, 2023, is included in noncurrent liabilities. Additionally, SDCP increased its borrowings as described in Note 4 to the financial statements.
Other noncurrent liabilities of $518,000 for start-up related costs owed primarily to the City of San Diego were paid off in 2023.
Net position
SDCP ended 2023 with a net position of $186,012,000, driven by positive margins from a full year of delivering energy to its expanded customer base.
SAN DIEGO COMMUNITY POWER
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEARS ENDED JUNE 30, 2023 AND 2022
8 The following is a summary of SDCP’s results of operations and a discussion of significant changes for the years ended June 30:
2023 2022 2021
Operating revenues 891,178,064 $ 386,237,698 $ 14,809,010 $ Investment income 433,366 14,603 -
Total income 891,611,430 386,252,301 14,809,010
Operating expenses 746,131,125 328,966,597 27,551,819
Nonoperating expenses 1,998,926 706,115 235,718
Total expenses 748,130,051 329,672,712 27,787,537
Change in net position 143,481,379 $ 56,579,589 $ (12,978,527) $ Operating revenues
SDCP’s operating revenues are derived from the sale of electricity to commercial and residential customers throughout its territory. SDCP began selling electricity to a relatively small number of municipal and commercial accounts toward the end of 2021. In 2022, its commercial customer base came entirely online and residential customers began to phase in during late 2022. This expansion accounts for the large change in revenues in 2022 compared to 2021. In April 2023, SDCP expanded into National City as well as the unincorporated County of San Diego. Providing service to these additional customers, as well as providing service for a full year to the customers enrolled during 2022, accounted for much of the increased revenues in 2023. In addition to customer base growth, SDCP increased its average rates, which had the effect of increasing revenues.
Operating expenses
SDCP’s largest expense each year was the purchase of electricity delivered to its customers. SDCP procures energy from a variety of sources and focuses on maintaining a balanced renewable power portfolio at competitive costs. Operating expenses increased each year due to operating activities associated with enrollment of customer accounts.
Expenses for staff compensation, contract services, and other general and administrative expenses increased in 2023 as the SDCP grew to operational capacity.
Nonoperating expenses
Interest expense on borrowings during the years are included as nonoperating expenses. Interest expense increased each year as a result of increased borrowings and changing interest rates.
SAN DIEGO COMMUNITY POWER
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEARS ENDED JUNE 30, 2023 AND 2022
9 ECONOMIC OUTLOOK
SDCP began providing electricity to its municipal customers in March 2021. SDCP has grown rapidly and is committed to providing its customers with cleaner energy at competitive rates.
Delivery of electricity to its commercial and industrial customers began in June 2021with plans to continue enrollment over four phases. During fiscal year 2023, the enrollment of all customers (municipal, commercial and industrial, and residential) from all seven member jurisdictions was substantially completed for the Unincorporated County of San Diego and the cities of Chula Vista, Encinitas, Imperial Beach, La Mesa, National City, and San Diego. Therefore, fiscal year 2024 will reflect a full fiscal cycle of revenue and expenses with substantially all customers from all member jurisdictions enrolled. Prior to adding new cities, SDCP performs a thorough cost benefit analysis to determine whether the addition would be mutually beneficial.
In the normal course of business, SDCP enters into various agreements, including renewable energy agreements and other power purchase agreements to purchase power and electric capacity.
SDCP enters into power purchase agreements in order to comply with state law and voluntary targets for renewable and greenhouse gas (GHG) free products.
SDCP has grown rapidly and is committed to providing its customers with cleaner energy at competitive rates. The agency has nearly completed full enrollment of its member jurisdictions having enrolled unincorporated County of San Diego and the cities of Chula Vista, Encinitas, Imperial Beach, La Mesa, National City, and San Diego. The agency is well-positioned to achieve its goals of increasing its renewable energy portfolio, helping to electrify the San Diego region, expanding its energy efficiency programs, reducing its carbon footprint, and creating jobs and economic benefits for the San Diego region.
REQUEST FOR INFORMATION
This financial report is designed to provide SDCP’s customers and creditors with an overview of the SDCP’s finances and to demonstrate SDCP’s accountability for the funds under its stewardship.
Please address any questions about this report or requests for additional financial information to 815 E Street, Unit 12716, San Diego, CA 92112.
Respectfully submitted,
Karin Burns, CEO
BASIC FINANCIAL STATEMENTS
SAN DIEGO COMMUNITY POWER
STATEMENTS OF NET POSITION
JUNE 30, 2023 AND 2022
10 The accompanying notes are an integral part of these financial statements. 2023 2022
Current assets
Cash and cash equivalents - unrestricted 65,683,880 $ 57,076,718 $ Accounts receivable, net of allowance 110,513,731 50,386,990 Accrued revenue 78,792,784 46,939,615
Prepaid expenses 30,527,498 4,461,308
Other receivables 233,715 -
Deposits 14,771,350 6,241,057
Total current assets 300,522,958 165,105,688
Noncurrent assets
Lease asset, net of amortization 873,251 -
Capital assets, net of depreciation 159,083 -
Cash and cash equivalents - restricted 2,147,000 12,500,000 Deposits 2,885,000 3,450,000
Total noncurrent assets 6,064,334 15,950,000
Total assets 306,587,292 181,055,688
Current liabilities
Accrued cost of electricity 77,345,343 57,231,504
Accounts payable 510,812 624,955
Other accrued liabilities 3,794,647 740,006
State surcharges payable 500,589 332,586
Deposits - energy suppliers 630,000 42,624,000
Interest payable 552,054 113,862
Loans payable - 5,000,000
Lease liability 366,323 -
Total current liabilities 83,699,768 106,666,913
Noncurrent liabilities
Bank note payable 35,730,000 31,340,082
Due to cities - 517,741
Deposits - energy suppliers 624,000 -
Lease liability 521,193 -
Total noncurrent liabilities 36,875,193 31,857,823
Total liabilities 120,574,961 138,524,736
Net investment in capital assets 73,268 -
Restricted for collateral 2,147,000 2,500,000
Unrestricted 183,792,063 40,030,952
Total net position 186,012,331 $ 42,530,952 $
NET POSITION
LIABILITIES
ASSETS
SAN DIEGO COMMUNITY POWER
STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN NET POSITION
YEARS ENDED JUNE 30, 2023 AND 2022
11 The accompanying notes are an integral part of these financial statements. 2023 2022
OPERATING REVENUES
Electricity sales, net 891,178,064 $ 383,800,198 $
Liquidated damages - 2,437,500
Total operating revenues 891,178,064 386,237,698
OPERATING EXPENSES
Cost of electricity 720,327,704 319,686,027
Contract services 15,957,376 3,520,098
Staff compensation 6,726,270 3,662,441
Other operating expenses 2,866,222 2,098,031
Depreciation and amortization 253,553 -
Total operating expenses 746,131,125 328,966,597
Operating income 145,046,939 57,271,101
NON-OPERATING REVENUES (EXPENSES)
Investment income 433,366 14,603
Interest and financing expense (1,998,926) (706,115)
Nonoperating revenues (expenses), net (1,565,560) (691,512) CHANGE IN NET POSITION 56,579,589 143,481,379
Net position at beginning of year 42,530,952 (14,048,637) Net position at end of year 186,012,331 $ 42,530,952 $
SAN DIEGO COMMUNITY POWER
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2023 AND 2022
12 The accompanying notes are an integral part of these financial statements. 2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 801,265,394 $ 300,940,324 $
Receipts from liquidated damages - 2,437,500
Receipts from supplier security deposits 47,431,731 42,204,000 Other operating receipts 10,964,074 6,801,249
Payments to suppliers for electricity (753,820,919) (284,842,750) Payments for goods and services (16,547,960) (5,114,220) Payments for staff compensation and benefits (6,302,492) (3,407,133) Payments for deposits and collateral (80,254,418) (7,212,708) Payments of state surcharges (1,899,237) (808,996)
Net cash provided by operating activities 836,173 50,997,266
CASH FLOWS FROM NON-CAPITAL
FINANCING ACTIVITIES
Proceeds from bank note 55,910,000 8,500,000
Principal payments - loans and advance from cities (5,517,741) - Principal payments - bank note (51,520,082) -
Interest and related expense payments (1,560,734) (655,717) Net cash provided (used) by non-capital
financing activities (2,688,557) 7,844,283
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments of lease liability (235,232) -
Payments to acquire capital assets (91,588) -
Net cash used by capital and related financing activities (326,820) -
CASH FLOWS FROM INVESTING ACTIVITIES
Investment income received 433,366 14,603
Net change in cash and cash equivalents (1,745,838) 58,856,152 Cash and cash equivalents at beginning of period 69,576,718 10,720,566 Cash and cash equivalents at end of period 67,830,880 $ 69,576,718 $ Reconciliation to the Statement of Net Position
Cash and cash equivalents (unrestricted) 65,683,880 $ 57,076,718 $ Restricted cash 12,500,000 2,147,000
Cash and cash equivalents 67,830,880 $ 69,576,718 $
SUPPLEMENTAL CASH FLOW INFORMATION:
Capital acquisitions included in accounts payable 71,550 $ -
SAN DIEGO COMMUNITY POWER
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2023 AND 2022
13 The accompanying notes are an integral part of these financial statements. 2023 2022
Operating income 145,046,939 $ 57,271,101 $
Adjustments to reconcile operating income to net
cash provided by operating activities
Depreciation and amortization expense 253,553 -
(Increase) decrease in:
Accounts receivable, net (60,126,741) (49,270,869)
Accrued revenue (31,853,169) (34,719,306)
Prepaid expenses (26,066,190) (4,461,308)
Other receivables (233,715) 4,043,272
Deposits (7,965,293) (5,791,057)
Increase (decrease) in:
Accrued cost of electricity 20,113,838 41,086,784
Accounts payable (185,693) 262,672
Other accrued liabilities 3,054,641 650,672
State surcharges payable 168,003 321,305
Supplier security deposits (41,370,000) 41,604,000
Net cash provided by operating activities 836,173 $ 50,997,266 $
RECONCILIATION OF OPERATING INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
14 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY
San Diego Community Power (SDCP) is a California Joint Powers Authority created on October 1, 2019. As of June 30, 2023, parties to its Joint Powers Agreement consist of the following local governments:
County Cities
San Diego (Unincorporated) Chula Vista La Mesa
Encinitas National City
Imperial Beach San Diego
SDCP is separate from and derives no financial support from its members. SDCP is governed by a Board of Directors whose membership is composed of elected officials or other representatives of the member governments.
A core function of SDCP is to provide electric service that includes the use of renewable sources under the Community Choice Aggregation Program under California Public Utilities Code Section 366.2.
SDCP began its energy delivery operations in March 2021. Electricity is acquired from commercial suppliers and delivered through existing physical infrastructure and equipment managed by San Diego Gas and Electric.
BASIS OF ACCOUNTING
SDCP’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements.
SDCP’s operations are accounted for as a governmental enterprise fund and are reported using the economic resources measurement focus and the accrual basis of accounting – similar to business enterprises. Accordingly, revenues are recognized when they are earned, and expenses are recognized at the time liabilities are incurred. Enterprise fund-type operating statements present increases (revenues) and decreases (expenses) in total net position. Reported net position is segregated into three categories, if applicable – net investment in capital assets, restricted and unrestricted.
When both restricted and unrestricted resources are available for use, it is SDCP’s policy to use restricted resources first, then unrestricted resources as they are needed.
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
15 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS
For the purpose of the Statements of Cash Flows, SDCP defines cash and cash equivalents to include cash on hand, demand deposits, and short-term investments with an original maturity of three months or less. For the purpose of the Statements of Net Position, restricted cash balances are presented separately. Restricted cash reported on the Statements of Net Position includes collateral on a bank loan, as well as a required minimum balance to be maintained in one of its bank accounts.
PREPAID EXPENSES AND DEPOSITS
Contracts to purchase energy may require SDCP to provide a supplier with advanced payments or security deposits. Security deposits are generally held for the term of the contract and are classified as current or noncurrent assets depending on the length of the time the deposits will be outstanding. Also included are prepaid expenses and deposits for regulatory and other operating purposes.
CAPITAL ASSETS AND DEPRECIATION
SDCP’s policy is to capitalize furniture and equipment valued over $5,000 that is expected to be in service for over one year. Depreciation is computed according to the straight-line method over estimated useful lives of three years for electronic equipment, five years for furniture and seven years for leasehold improvements, unless limited by the length of the original lease term. SDCP does not own any electric generation assets.
LEASE ASSET AND LEASE LIABILITY
SDCP recognizes an asset and liability when it enters into certain leasing arrangements. The leased asset is amortized over the term of the lease. The lease liability is the present value of payments expected to be paid to the lessor during the lease term. SDCP’s only leased asset and liability relate to its office premises.
DEPOSITS - ENERGY SUPPLIERS
Various energy contracts entered into by SDCP require the supplier to provide SDCP with a security deposit. These deposits are generally held for the term of the contract or until the completion of certain benchmarks. Deposits are classified as current or noncurrent depending on the length of time the deposits will be held.
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
16 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NET POSITION
Net position is presented in the following components:
Net Investment in capital assets: This component of net position consists of capital and lease assets, net of accumulated depreciation and amortization, and reduced by outstanding borrowings that are attributable to the acquisition, construction, or improvement of those assets.
Restricted: This component of net position consists of restraints placed on net asset use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation.
Unrestricted: This component of net position consists of net position that does not meet the definition of “ net investment in capital assets” or “restricted.”
OPERATING AND NONOPERATING REVENUE
Operating revenues include revenue derived from the provision of energy to retail and wholesale customers, as well as liquidated damages resulting from counterparties who are unable to fulfill certain contractual obligations.
Investment income is considered “nonoperating revenue.”
REVENUE RECOGNITION
SDCP recognizes revenue on an accrual basis. This includes invoices issued to customers during the reporting period and electricity estimated to have been delivered but not yet billed.
Management estimates that a portion of the billed amounts will be uncollectible. Accordingly, an allowance for uncollectible accounts has been recorded.
OPERATING AND NONOPERATING EXPENSES
Operating expenses include the costs of energy and services, administrative expenses, and depreciation of capital assets. Expenses not meeting this definition are reported as nonoperating expenses.
ELECTRICAL POWER PURCHASED
During the normal course of business, SDCP purchases electrical power from numerous suppliers.
Electricity costs include the cost of energy and capacity arising from bilateral contracts with energy suppliers as well as generation credits, and load and other charges arising from SDCP’s participation in the California Independent System Operator’s centralized market. The cost of electricity and capacity is recognized as “Cost of Electricity” in the Statements of Revenues, Expenses and Changes in Net Position.
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
17 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ELECTRICAL POWER PURCHASED (CONTINUED)
To comply with the State of California’s Renewable Portfolio Standards (RPS) and self-imposed benchmarks, SDCP acquires RPS eligible renewable energy evidenced by Renewable Energy Certificates (Certificates) recognized by the Western Renewable Energy Generation Information System (WREGIS). SDCP obtains Certificates with the intent to retire them and does not sell or build surpluses of Certificates with a profit motive. SDCP recognizes an expense on a monthly basis that corresponds to the volume sold to its customers for its various renewable and carbon free products. This expense recognition increases accrued cost of energy reported on the Statements of Net Position. Payments made to suppliers reduce accrued cost of electricity.
SDCP purchases capacity commitments from qualifying generators to comply with the California Public Utilities Commission’s Resource Adequacy Program. The goals of the Resource Adequacy Program are to provide sufficient resources to the California Independent System Operator to ensure the safe and reliable operation of the grid in real-time and to provide appropriate incentives for the siting and construction of new resources needed for reliability in the future.
STAFFING COSTS
SDCP fully pays employees semi-monthly and fully pays its obligation for health benefits and contributions to its defined contribution retirement plan each month. SDCP is not obligated to provide post-employment healthcare or other fringe benefits and, accordingly, no related liability is recorded in these financial statements. SDCP provides compensated time off, and the related liability is recorded in these financial statements.
INCOME TAXES
SDCP is a joint powers authority under the provision of the California Government Code and is not subject to federal or state income or franchise taxes.
ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation of the current-year financial statements. These reclassifications did not result in any change in previously reported net position or change in net position.
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
18 2. CASH AND CASH EQUIVALENTS
SDCP maintains its cash in accounts at River City Bank in Sacramento, CA and at JP Morgan Chase in New York, NY. SDCP’s deposits are subject to California Government Code Section 16521 which requires that its banks collateralize public funds in excess of the Federal Deposit Insurance Corporation limit of $250,000 by 110%.
On May 25, 2023, SDCP adopted its investment policy that prioritized safety of principle, liquidity, return on investments and standard of care. Additionally, the policy defined acceptable investment types, prohibited investment types, diversification and risk. SDCP additionally monitors its banking risk exposure on an ongoing basis.
3. ACCOUNTS RECEIVABLE
Accounts receivable were as follows as of June 30:
2023 2022
Accounts receivable from customers 132,721,648 $ 54,413,346 $ Allowance for uncollectible accounts (22,207,917) (4,026,356) Net accounts receivable 110,513,731 $ 50,386,990 $
The majority of account collections occur within the first few months following customer invoicing. SDCP estimates that a portion of the billed accounts will not be collected. SDCP continues collection efforts on accounts in excess of de minimis balances regardless of the age of the account. Although collection success generally decreases with the age of the receivable, SDCP continues to have success in collecting older accounts. The allowance for uncollectible accounts at the end of a year includes amounts billed during the current and prior fiscal years. The increase in the allowance from 2022 to 2023 is a result of the large growth in customers during the same period. Bad debt is reported as a reduction in electricity sales on the Statement of Revenues, Expenses, and Changes in Net Position.
4. CAPITAL ASSETS AND LEASE ASSET
Capital asset activity for the years ended June 30, 2023 and 2022 was as follows:
Furniture &
Equipment
Accumulated
Depreciation Total
Balances at June 30, 2022 - $ - $ - $
Additions 163,138 (4,055) 159,083
Balances at June 30, 2023 163,138 $ (4,055) $ 159,083 $
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
19 4. CAPITAL ASSETS AND LEASE ASSET (continued)
Lease asset activity for the years ended June 30, 2023 and 2022 was as follows:
Lease Asset
Accumulated
Amortization Total
Balances at June 30, 2022 - $ - $ - $
Additions 1,122,749 (249,498) 873,251
Balances at June 30, 2023 1,122,749 $ (249,498) $ 873,251 $
5. DEBT
BANK NOTE PAYABLE
In May 2020, SDCP arranged to borrow up to $35,000,000 through a revolving credit agreement from River City Bank (RCB) to provide cash for working capital before sufficient revenue is to be collected from customers. In March 2022, the agreement was amended and the amount available to SDCP increased to $50,000,000. At June 30, 2022, SDCP borrowed a total of $31,340,000. During 2023, SDCP terminated this agreement and paid off its debt with RCB and entered into a new revolving credit agreement with JPMorgan (JPM) to borrow up to $150,000,000. As security, SDCP assigned a security interest in all customer accounts receivable, revenues, debt service reserve accounts, and cash collateral accounts. Principal can be drawn as needed and interest is accrued on the outstanding balance. SDCP borrowed a total of $35,730,000 from JPM during 2023. The stated maturity date is February 28, 2028, with interest payable each month. The interest rate at June 30, 2023, was computed at the One-Month CME Term SOFR plus 1.525-1.600% per annum depending on the utilized balance. In the event of default, the note becomes immediately due and payable. In addition to these borrowings, SDCP issued a Standby Letter of Credit secured by the line of credit agreement. At June 30, 2023, this Letter of Credit reduced the available portion of the line by approximately $5,000,000, but is not considered debt to SDCP.
LOANS PAYABLE
In May 2020, SDCP borrowed $5,000,000 in total from two private lenders for the purpose of funding a collateral account to be held by River City Bank. Each loan was due on May 21, 2023.
The notes bear interest equal to the one-month LIBOR, or its replacement rate, plus 2% per annum. Interest payments were due quarterly, commencing when SDCP began selling electricity to customers. In August 2022, SDCP repaid both private loans in full.
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
20 5. DEBT (continued)
Note and loan principal activity and balances were as follows for the following direct borrowings:
Beginning Additions Payments Ending
Year ended June 30, 2023
Bank note payable - JPM - $ 35,730,000 $ - $ 35,730,000 $ Bank note payable - RCB 31,340,082 20,180,000 (51,520,082) - Loans payable 5,000,000 - (5,000,000) -
Total 36,340,082 $ 55,910,000 $ (56,520,082) $ 35,730,000 Amounts due within one year -
Amounts due after one year 35,730,000 $
Beginning Additions Payments Ending
Year ended June 30, 2022
Bank note payable - RCB 22,840,082 $ 8,500,000 $ - $ 31,340,082 $ Loans payable 5,000,000 - - 5,000,000
Total 27,840,082 $ 8,500,000 $ - $ 36,340,082
Amounts due within one year 5,000,000
Amounts due after one year 31,340,082 $
The following is a summary of SDCP’s estimated future annual payment obligations, assuming the outstanding balance at June 30, 2023 continues for the remainder of the credit agreement. A rate of 6.59%, equal to the interest rate charge as of the year ended June 30, 2023, was used to calculate future interest. Also included in the calculation of future interest are charges associated with the unutilized portion of the loan. The rate used to calculate the unutilized portion was
0.62%, equal to the rate charged as of the year ended June 30, 2023. Future changes in market interest rates and outstanding principal balance will affect the actual future interest paid by SDCP.
Principal Interest Total
Year ended June 30,
2024 - $ 3,063,181 $ 3,063,181 $
2025 - 3,063,181 3,063,181
2026 - 3,063,181 3,063,181
2027 - 3,063,181 3,063,181
2028 35,730,000 2,042,121 37,772,121
Total 35,730,000 $ 14,294,845 $ 50,024,845 $
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
21 6. DUE TO CITIES
Included in noncurrent liabilities as of June 30, 2022 are amounts advanced by the Cities of San Diego, La Mesa, and Encinitas (the Cities) to SDCP for start-up related costs. Interest does not accrue on the liabilities to the Cities. SDCP repaid this obligation during 2023.
The following is a schedule of changes in the balance due to cities during the period:
Beginning Additions Payments Ending
Year ended June 30, 2023
Start-up funds
advanced from Cities 517,741 $ - $ (517,741) $ - $
Total 517,741 $ - $ (517,741) $ -
Amounts due within one year -
Amounts due after one year - $
Beginning Additions Payments Ending
Year ended June 30, 2022
Start-up funds
advanced from Cities 517,741 $ - $ - $ 517,741 $
Total 517,741 $ - $ - $ 517,741
Amounts due within one year -
Amounts due after one year 517,741 $
7. LEASE
A lease asset is reported in accordance with Governmental Accounting Standards Board No. 87 (GASB 87). According to GASB, the Statement aims to increase the usefulness of governments’ financial statements by requiring reporting of certain lease assets and liabilities that previously were not recognized on the statement of net position. In November 2022, SDCP entered into a 24-month non-cancelable lease for its office premises. The rental agreement includes an option to renew the lease for an additional year. Rental payments under this lease were $268,000 for the year ended June 30, 2023.
As of June 30, 2023, future minimum lease payments under this lease were projected as follows:
Principal Interest Total
Year ended June 30,
2024 366,323 $ 32,444 $ 398,767 $
2025 383,152 15,615 398,767
2026 138,041 1,333 139,374
Total 887,516 $ 49,392 $ 936,908 $
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
22 8. RISK MANAGEMENT
SDCP is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; and errors and omissions. During the year, SDCP purchased insurance policies from investment-grade commercial carriers to mitigate risks that include those associated with earthquakes, theft, general liability, errors and omissions, and property damage. There were no significant reductions in coverage compared to the prior year. SDCP has general liability coverage of $10,000,000 with a deductible of $100,000. From time to time, SDCP may be party to various pending claims and legal proceedings. Although the outcome of such matters cannot be forecasted with certainty, it is the opinion of management and SDCP’s legal counsel that the likelihood is remote that any such claims or proceedings will have a material adverse effect on SDCP’s financial position or results of operations.
SDCP maintains risk management policies, procedures and systems that help mitigate credit, liquidity, market, operating, regulatory and other risks that arise from participation in the California energy market. Credit guidelines include a preference for transacting with investment-grade counterparties, evaluating counterparties’ financial condition and assigning credit limits as applicable. These credit limits are established based on risk and return considerations under terms customarily available in the industry. In addition, SDCP enters into netting arrangements whenever possible and where appropriate obtains collateral and other performance assurances from counter parties.
9. PURCHASE COMMITMENTS
In the ordinary course of business, SDCP enters into various power purchase agreements in order to acquire renewable and other energy and electric capacity. The price and volume of purchased power may be fixed or variable. Variable pricing is generally based on the market price of electricity at the date of delivery. Variable volume is generally associated with contracts to purchase energy from as-available resources such as solar, wind, and hydro-electric facilities.
The following table represents the expected, undiscounted, contractual obligations outstanding as of June 30, 2023:
Year ending June 30,
2024 628,800,000 $
2025 544,800,000
2026 330,600,000
2027 178,500,000
2028 124,400,000
2029-2047 1,052,500,000
Total 2,859,600,000 $
SAN DIEGO COMMUNITY POWER
NOTES TO THE BASIC FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
23 10. FUTURE GASB PRONOUNCEMENTS
The requirements of the following GASB Statements are effective for years ending after June 30, 2023:
GASB has approved GASB Statement No. 100, Accounting Changes and Error Corrections – Amendment of GASB Statement No. 62, and GASB Statement No. 101, Compensated Absences.
When they become effective, application of these standards may restate portions of these financial statements.